12+ Years of Industry Experience

Challenges Faced by Online Grocery Businesses & Their Solutions

Grocery shopping is a routine task; it is generated from need, and not desire, or luxury for that matter. We are not talking about planning a vacation or dining in a fancy, posh restaurant; we are taking about something that needs to be done on routine basis. And yet, online penetration of grocery shopping lags far behind other sectors.

That definitely makes one wonder, when majority of other ecommerce sectors are doing great, what’s the reason behind e-Grocery segment not booming enough? It is due to the following challenges, which also represent the growth opportunities in the sector.

Challenge 1: Storage & Delivery Cost

Perishable items require more investment on storage & delivery infrastructure (refrigeration). Special warehouses,delivery containers and specialized delivery vans must be there to ensure perishables are delivered fresh. All this requires lots of capital.

Solution: Just-in-time supply system integrated with state of the art inventory management API can minimize inventory costs. Apart from that, teaming up with an efficient delivery service provider that has the right vehicles to ensure customer satisfaction is a good idea from economic and operational perspectives.

Challenge 2: Low Profit Margins

Customers are reluctant to pay for convenience charges and want to get faster delivery & quality assurance. Catering to this particular need can actually turn out as a financial nightmare for online grocers.

Solution: Implement asset light business model. Instead of acquiring your own fleet of vehicles and staff to carry out the deliveries for you, hire a logistics company. That will cost you less than the cost of vehicles and salaries combined. While signing the contract agreement with the delivery service provider, make sure you mention that between your office gate and customer’s doorstep, the goods to be delivered are the service providers’ responsibility.

Reduce operational cost of your online business

Challenge 3: Inefficient Delivery

It’s hard to break the threshold called hyper-local segments with one delivery system, especially when the customers expect same-hour delivery. Product quality, time, and delivery cost – all these critical factors impose a huge challenge for an efficient delivery system.

Solution: Logical decision would be to team up with reliable hyper local delivery service providers. Although, not directly related to grocery delivery, Amazon India presents a good example of this, as they partnered with Indian post to improve their reach in rural areas of India.

And then there’s a futuristic solution – delivery through drones. It may seem a viable solution only in near future, but it would soon become an essential one. Amazon has begun it in US. Various Chinese ecommerce retailers are also using it extensively. It is true that drone delivery will incur you huge infrastructure/equipment expenditure, but once done, things will be just gliding seamlessly.

Challenge 4: Consumer Habit

Regardless of the number of online grocery stores opening up, and the convenience of shopping online, people still prefer buying grocery items from a physical store. The graph below clearly reflects that consumer behavior.

The stats are from the US, but just one glance at it and you will realize this preference of picking their own foods is more common than anything else in the world. And that’s because of the human nature, we just want to take a whiff of that melon, we want to hold a potato in our hand before being sure of outing it in the basket.

Solutions: Merging your online & offline grocery shopping experience is a good idea in this regard. Here are some ways how you can improve customer experience while keeping your expenses low are:

Customer places the order through online portal & picks up order at the store

The above two models save the delivery cost. Now, let’s talk about two alternates that reduce operational cost while improving customer experience.

Customer visits offline store, orders the desired items online (through in-store setup) and the goods are delivered to their home

Self-checkout at stores through technologies like iBeacon to let customers avoid the long cash-counter queues. A new trendsetter is in making, do check what Amazon Go is doing. Your customers will definitely love this type of shopping.

Pre-orders & curb-side pickups are other interesting techniques to enhance customer experience. In fact, they are already a hit among customers in many parts of the world.To implement, simply offer a feature to pre-order groceries and schedule a delivery time or select a pre-decided pick-up spot. It saves time for the customer and saves you last mile delivery expenses.

Conclusion

The online grocery industry is still in the nascent stage and has just started to pick up some pace. It is certain that the sector will become more efficient & profitable with time as the new technological advancements will come along.

No doubt that the market will remain challenging for the current generation of online grocers. But businesses that will stick to their guns, will also garner the advantage of being the early bird, since they already have captured the market as the sector continues to become mainstream with new technology.

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